TMI Blog1984 (11) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation. It sells tractors and other agricultural implements on cash payment basis as also on hire-purchase basis. In respect of the sales effected on hire-purchase basis, the buyers are liable to pay interest on the price remaining due. In regard to the interest which fell due during the year ending March 31, 1969, the assessee credited it in part to the hire-purchase interest suspense account. A small part thereof was taken to the profit and loss account. The total interest which had fallen due in the year in question was Rs. 16,65,327. Out of that, a sum of Rs. 71,820 was credited by the assessee to the profit and loss account and Rs. 15,93,703 was transferred to hire-purchase "interest suspense account ". According to the assessee, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, held that the assessee was following the cash system of accounting as it was acting on the basis of realisation. The Tribunal took into account the fact that the assessee was a Government undertaking and, therefore, there would be no intention to avoid any tax on any income. In the view of the Tribunal, the system followed by the assessee was a reasonable system. For those reasons, the Tribunal held that the assessee was not following the mercantile system of accounting and the sum of Rs. 15 lakhs odd could not be added to the taxable amount. The Revenue being aggrieved by the order of the Tribunal applied for a reference to it in terms of section 256(1) of the Income-tax Act. The Tribunal referred the question for our opinion as ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee owed to the company for a long time past should be written off. The directors by their resolution, passed on the same date, refused to write off the amount without consulting the general body of shareholders and, pending the settlement of the dispute, the directors resolved to keep the said sum in suspense without paying it. The said sum was debited as revenue expenditure of the company and was allowed as deduction in computing the profits of the company for the purpose of income-tax. The question arose whether the assessee was liable to pay tax on the said sum. The Department held in those circumstances that the assessee followed the mercantile method of accounting and not cash accounting. The Tribunal, however, took a differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e method of accounting had changed from mercantile system to cash system. It was contended before the High Court that the interest credited to the suspense account could not form part of the assessee's real income. A Bench of the Calcutta High Court rejected the stand of the assessee holding that the alteration in book-keeping and transfer of amounts to the suspense account could not be termed as a change in the method of accounting. It was observed by Sabyasachi Mukharji J. that the claim for interest not having been given up, the amounts in question were includible in the total income of the assessee for the relevant assessment year. The Kerala High Court in State Bank of Travancore v. CIT [1977] 110 ITR 336 also took the view that wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, necessarily have to be included in the income of the assessment year. Learned counsel for the respondent assessee submitted that the Tribunal had held as a fact that the assessee was following realisation basis of accounting. That would be a finding of fact with which this court in reference application could not interfere. I regret, the finding of the Tribunal that the assessee was acting on realisation basis would not be pure question of fact. In fact, upon the facts asserted by the assessee, it would indicate mercantile system of accounting. That would be a pure question of law. It is obvious that the assessee was proceeding on accrual basis and not on realisation basis. If the hire-purchase interest had not been transferred to sus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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